V.7:3 (69-72): Tactical stock trading by Peter Eliason
Product Description
Tactical stock trading
by Peter Eliason
We have all heard that there is no solution to predicting the market because price movement is a random walk. The statement is partially right and partially wrong. Price movement may be random, but there is an exact solution to a random walk that can be used to mathematically beat the markets.
The solution revolves around the use of a tempered martingale numerical series. This algorithm is not probabilistic, but it is mathematically exact. (See Stocks & Commodities, July 1988, page 40.) It has two components: a point spread that determines exactly when to buy and sell and a numerical series that determines how many shares to buy or sell to produce a pre-known gross profit.
We start with a beginning numerical series such as [1 2 3 4 5 6], with each number representing a "factorable" number of shares to own. The "factor" is multiplied times the number in the series to determine the number of shares which will be traded. For example, a factor of 100 would make the "5" in the series represent 500 shares.
Once we have the series, we need a "base price" which is usually just the price of the last buy, sell or no action transaction. We start by buying at the base price and set two limit orders a point spread above (a sell) and below (a buy) the base price. If a stock's price is $10 per share, the limit orders may be set at $9 or $11—or any other spread, for that matter.
We have all heard that there is no solution to predicting the market because price movement is a random walk. The statement is partially right and partially wrong. Price movement may be random, but there is an exact solution to a random walk that can be used to mathematically beat the markets.
The solution revolves around the use of a tempered martingale numerical series. This algorithm is not probabilistic, but it is mathematically exact. (See Stocks & Commodities, July 1988, page 40.) It has two components: a point spread that determines exactly when to buy and sell and a numerical series that determines how many shares to buy or sell to produce a pre-known gross profit.
We start with a beginning numerical series such as [1 2 3 4 5 6], with each number representing a "factorable" number of shares to own. The "factor" is multiplied times the number in the series to determine the number of shares which will be traded. For example, a factor of 100 would make the "5" in the series represent 500 shares.
Once we have the series, we need a "base price" which is usually just the price of the last buy, sell or no action transaction. We start by buying at the base price and set two limit orders a point spread above (a sell) and below (a buy) the base price. If a stock's price is $10 per share, the limit orders may be set at $9 or $11—or any other spread, for that matter.
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